Sell shares of Waaree and Premier Energies! Find out why Kotak is pessimistic about stocks in the solar sector
Waaree Energies shares: Kotak Institutional Equities has recently provided insight into the current state of the Indian solar sector, particularly focusing on Premier Energies Ltd and Waaree Energies Ltd. According to Kotak, valuations for Indian solar manufacturing companies are currently at a premium, suggesting continued growth in the sector. However, the brokerage firm also warns of increasing competitive pressures that may impact unit economics in the future.
Premier Energies and Waaree Energies are highlighted as two reputable domestic solar equipment manufacturers. Premier Energies is commended for its integrated capital-intensive approach and early mover advantage in solar cell capacity. On the other hand, Waaree Energies is recognized for its strong growth potential, driven by a large domestic module capacity and established presence in the lucrative US market.
Kotak’s analysis indicates that while both companies show promise, valuations are high, leading to Sell ratings for Premier and Waaree Energies. The firm predicts that Premier Energies and Waaree Energies may face challenges in sustaining profitability due to competitive pressures in the industry.
Furthermore, Kotak notes that the Indian government has implemented various trade barriers, such as basic custom duties, while the US has imposed tariffs on Chinese solar imports and enacted the Uyghur Forced Labor Prevention Act. These factors may impact the operations and profitability of solar companies in both countries.
These measures have played a crucial role in the rapid growth of the Indian solar manufacturing sector. According to Kotak, maintaining these policies in the medium term is essential for the industry to continue expanding.
Indian manufacturers have mainly focused on module assembly, targeting both domestic and export markets. With the implementation of ALMM List II starting in FY2027, many companies are now venturing into solar cell manufacturing. Kotak predicts that increased competition will begin to impact profit margins starting in 2028.
The brokerage firm believes that Indian solar companies are well-positioned for significant growth in both domestic and US markets, thanks to various trade and non-trade barriers. In the long run, it anticipates that integrated Indian manufacturers (from ingot to module) and companies with local US manufacturing facilities will maintain a competitive edge over their competitors, leading to higher profitability.
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Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.